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Oracle Rises After Sun Acquisition Fuels Profit Gain

Oracle Profit Tops Estimates, Boosted by Sun Purchase
Larry Ellison, chief executive officer of Oracle Corp. Photographer: Kim White/Bloomberg

Oracle Corp., the world’s second-largest software maker, advanced after quarterly results showed the company’s acquisition of Sun Microsystems fueled a bigger profit gain than analysts had predicted.

Fourth-quarter earnings excluding acquisition costs and other expenses was 60 cents a share, Redwood City, California-based Oracle said yesterday. That topped the 54-cent average of analysts’ estimates compiled by Bloomberg.

Chief Executive Officer Larry Ellison has bought 67 companies since early 2005, including this years’s $7.3 billion purchase of Sun Microsystems Inc. The acquisitions have increased the types of programs Oracle can sell and added customers who eventually buy support contracts, providing a steady stream of revenue. Oracle has called that recurring revenue stream its most profitable business.

“Oracle is minting money,” said Mark Murphy, an analyst at Piper Jaffray Cos. in San Francisco. “The lesson is Oracle has a unique business model, with earnings that are both resilient and powerful.” He rates the shares “overweight” and doesn’t own any.

Sales of new software licenses, a key indicator of future growth, rose 14 percent to $3.14 billion in the period ended May 31. That beat the $2.97 billion projection by Sarah Friar, an analyst at Goldman Sachs Group Inc. in San Francisco. Oracle reported $1.23 billion in new hardware sales, and said Sun added more than $400 million to earnings, excluding some costs.

‘Amazing’ Margins

“Sun is now profitable, giving them some pretty amazing operating margins,” Friar said. Oracle’s operating margin excluding some items of 46 percent topped Friar’s estimate of 40.1 percent.

Oracle rose 44 cents to $22.66 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 7.6 percent this year.

Fourth-quarter net income rose 25 percent to $2.36 billion, or 46 cents a share, from $1.89 billion, or 38 cents, a year earlier.

The company reports sales that include deferred revenue from acquired companies, and doesn’t conform to generally accepted accounting principles. On that basis, sales rose to $9.63 billion. Analysts estimated $9.49 billion.

“Oracle executes extremely well, time and time again,” Andy Miedler, an analyst at Edward Jones, said in an interview from St. Louis. “They set out a plan for Sun, are executing very well against it and, in the meantime, their software business is doing just fine.”

Rising Sales

For the current quarter ending Aug. 31, earnings excluding some costs will be 35 cents to 37 cents a share, President Safra Catz said on a conference call yesterday after the results were released. Analysts estimated 36 cents. Revenue will increase 44 percent to 48 percent from a year earlier, Catz said. That would be about $7.29 billion to $7.49 billion. Analysts projected $7.55 billion.

Sales of new licenses will rise 2 percent to 12 percent, based on current foreign-exchange rates, Catz said.

Sun added more than $400 million to earnings excluding some items, Catz said in the statement.

Oracle plans to more than double the size of its Sun sales force, Ellison, 65, said on the call. “We are focused on growing the Sun business and growing it rapidly,” he said.

Oracle competes against SAP AG, the world’s biggest maker of business-management software, handling tasks such as accounting, inventory and human resources. With Sun, Oracle now vies in the server market with International Business Machines Corp., Hewlett-Packard Co. and Dell Inc.

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